Demand for office space falls 32% in top 8 cities

Cumulative office space absorption for the top eight cities in India fell 32 per cent in the first quarter of 2012, a Cushman and Wakefield report said.

Absorption across top eight cities, at 7.0 million sq.ft., registered a decline of 32 per cent over the last quarter and 6 per cent over the same period last year.

Mumbai, Kolkata, and Ahmedabad were the only markets showing a rise in absorption at 35 per cent, 33.7 per cent and 5.6 per cent, respectively.

In contrast to declining absorption levels, there was a rise by 140 per cent in pre-commitments compared with the previous quarter and by 41 per cent compared with the same quarter last year.

Total pre-commitments during the first quarter of 2012 were at 3.7 million sq feet across the top eight cities.

Bangalore recorded the highest pre-commitments of 2.9 million sq feet followed by the National Capital Region (0.45 msf) and Chennai (0.1 msf).

Mumbai witnessed the highest growth in absorption at 35 per cent due to the significant increase in space take up by the banking and financial sector (BFSI), which is in expansion mode.

Mumbai also saw a number of large-sized deals ranging from 100,000–300,000 sq.ft; amounting to 50 per cent of the absorption cumulatively.

Bangalore noted the highest absorption at 2.45 million sq feet, although the absorption was lower than last quarter; it was 17 per cent higher compared with the first quarter last year.

NCR saw one of the lowest absorption levels at 0.55 million sq ft due to the cautious approach of companies.

On the office space supply side, 6.8 million sq feet of space was completed, which represents a cumulative fall of 24 per cent quarter on quarter. This has helped in maintaining the demand to supply gap in the office market, retaining the overall vacancy at 18 per cent.

However, supply could exceed demand in cities such as Mumbai, National Capital Region and Chennai as these cities have a strong pipeline of under-construction inventory, while Bangalore is expected to witness the strongest demand.

Mr Ravi Ahuja, Executive Director, Office Transactions, Cushman & Wakefield India, said: “Though the first quarter has seen subdued office absorption, majors in the IT/ITeS and domestic BFSI sectors have already indicated plans to grow which will result in strong demand for office space during the year. Growth in non-IT absorption is also likely to provide sustained demand in the domestic market across the major cities. Further, with the predictions of a better economic environment in the US and the Euro zone, the Indian markets would be impacted favourably.”

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